The construction trades encompass various types of business opportunities. In addition to plumbers and HVAC businesses, excavating, masonry, carpentry, electrical, etc., are significant sectors to start a company. Within each of those types, there are two prospective business areas of expertise: new construction and service.

New construction contracting businesses deal with building structures where none existed before, where structures were razed and where additions to existing structures are to be made.

Service businesses deal with the maintenance, repair, replacement and installation of systems, in part or in totality, within existing structures.

In the plumbing and heating (PHVAC) industry, those who wish to enter the business arena must decide which sector they want to operate in.

In new construction, customers are limited to builders and general contractors to whom they are subcontractors.

In the service arena, their customer base is more widespread, as it includes the general public, as well as builders and general contractors who require service work.

Some contractors might choose to perform only plumbing tasks. Others might want to deal only in the HVAC arena. There are those who want to perform plumbing and heating, while others want to only do heating and cooling. And then, there are those who want to address all three categories.

Pricing for profit, not only survival

If you intend to enter the business arena, or already have, as a businessperson, you must address your true operational costs so you can arrive at selling prices that will allow you to recover the costs you incur to perform any task and earn a profit above that cost.

When developing your prices, you must also consider how consumers will react to the fees you charge for the work they want you to perform. That’s the time you must come to the realization that pricing policies differ between service-type PHVAC businesses and new-construction-type PHVAC businesses. 

All businesses must identify and calculate their true operational costs as accurately as possible and apply profit margins to those costs that enable the business to attain the goal for which it exists in the first place. That is, to recover cost and earn a reward above said cost.

In the PHVAC industry, the labor and overhead costs for any task are usually calculated on a time-related basis — by the hour, day, etc.

In the PHVAC service sector, most tasks can be completed by a single qualified journeyman technician equipped with a properly equipped service vehicle. That means for each task, the service contractor incurs the costs associated with that requirement.

At present, service vehicles cost between $25,000 and $45,000, although some contractors may choose to purchase more expensive vehicles.

When you add the minimum costs of vehicular fuel, insurance, maintenance, shelving, finance charges, registration and inspection to the minimum range cost for the vehicle purchase, the minimum cost per vehicle hour ranges between $8 and $11.

That range does not include the cost of tools and inventory required on each service vehicle.

This is a significant operational business cost that new-construction contractors do not incur when their techs and tech helpers go to jobsites at their own expense. If the business provides vehicular transportation from the shop to the jobsite, several employees could travel in a single vehicle, reducing transportation costs compared to PHVAC service businesses. 

Where the cost gap comes from

In the PHVAC industry, it should be noted that different geographical areas have diverse factors regarding salaries. Qualified journeyman techs minimally range from $33.65 to $48.08 per hour, while minimum apprentice salaries range from $17.79 to $28.85.

In addition to tech salaries, expenses related to tech salaries include FICA matching funds, unemployment/disability insurance, workers’ compensation insurance, liability insurance related to payroll, vacation/personal time, health insurance and retirement. 

When salary-related expenses are added to salaries, the qualified journeyman tech minimum hourly cost rises to between $42.06 and $60.10 per hour, while the minimum apprentice salary per hour increases to between $22.24 and $36.06.

Those aforementioned salaries and salary-related expenses are based on 2,080 hours/employee/year. 

However, the cost to the service sector of the business is higher since at least one hour is lost to nonrevenue-producing responsibilities per tech day. In that instance, the minimum cost range for the PHVAC service business per qualified tech hour rises to between $51.22 and $73.19.

Looking at the costs of vehicles and qualified journeyman service techs, it’s easy to see that the costs per tech hour for PHVAC service businesses are higher than those for new construction PHVAC contractors.

Qualified journeyman salaries in new construction businesses range between $9.16 and $13.09 an hour, less than the service business minimum salary range.

In addition to labor costs and the costs of whichever vehicular circumstance, PHVAC businesses have the additional overhead costs associated with administrative expenses, including administrative salaries and salary expenses, insurances, shops/offices, utilities, maintenance, office supplies and equipment, communications, advertising, professional accounting and legal services, and a myriad of miscellaneous business costs that, on the low end, can range between $67 and $139/tech/team unit hour, dependent upon geography and the policies of the business.

Considering the aforementioned factors, the minimum average cost per qualified journeyman tech hour for PHVAC service businesses, including each tech supplied with a properly equipped service vehicle, ranges from $126.23 to $223.19. These figures do not include the costs associated with inventory and tools required to meet the definition of properly equipped for the service vehicle.

In comparison, the average cost of the PHVAC new construction business only ranges between $109.06 and $199.10/journey tech hour without any consideration for a vehicular expense for each tech, since all techs travel to the jobsite at their own expense.

This is a minimum average cost difference of $17.16 to $24.09/qualified journeyman tech hour.

Solo service vs. team-based construction work

Another difference in the factors to consider is that the service industry usually requires only one qualified journeyman tech per truck to complete tasks. That means it is more cost-efficient overall to send a second truck when a task requires more than one person, even though two properly manned and equipped service vehicles cost more than putting a helper in a truck that doesn’t require help most of the time.

Once the work requiring two people is done, the second service vehicle can be dispatched to another job while the first service tech completes the portion of the task that only requires one person.

In the PHVAC new-construction sector, teams are typically used. A team consisting of one qualified journeyman tech and one apprentice would have an average minimum hourly cost factor of between $126.85 and $227.95.

Although the cost for the team is slightly higher than the aforementioned minimum hourly cost the service business incurs, the fact is that if the talents of each member of the new construction team are effectively used, more work can be done for every hour since new construction jobs almost always require more than one person.

It is also important to recognize that the service and new construction portions of the industry are separate profit centers. Productivity and profits are dependent on owners using the proper factors in a logical, mathematical and correct manner if they want their businesses to be balanced and profitable regarding every task their techs perform.